How Does PayPal's Triangle Shape Up Against Square?
In less than three short years, mobile-payment processor Square has taken the world by storm. Co-founded by Twitter's Jack Dorsey, the small startup company says it's running $4 billion in payments volume annually -- double its $2 billion annual volume estimate made just six months ago.
For anyone not familiar with the service, a quick rundown is in order. The company is geared towards small businesses and proprietors, and enables them to easily accept credit card payments on the go. Square attaches to smartphones' headphone jacks small credit card readers that are shaped like, well, a square. Customers simply sign with their fingers on the now-ubiquitous capacitive touchscreens that all mobile devices feature.
The company takes a 2.75% cut and makes next-day deposits to merchants' bank accounts. The service has taken off in popularity among local merchants, and you can be assured that's grabbed the attention of heavyweight incumbents, particularly eBay's (NAS: EBAY) PayPal.
PayPal has just announced a rival service to compete directly with Square, called "PayPal Here." It doesn't hide the fact that it's taking a direct shot at Square's success. The new app comes complete with a free small credit card reader that attaches to smartphones' headphone jacks and is shaped like, well, a triangle.
Luckily, when PayPal was brainstorming this competing service, it apparently decided to reduce the number of sides on its widget instead of increasing them. Quite frankly, a pentagon-shaped card reader would have looked a bit ridiculous.
PayPal is undercutting its small rival by a modest 5 basis points and is charging 2.7% for processing. Beyond that, it will try to offer other services like remote processing of checks and offering cash back through its debit card.
The processor has been aggressively trying to get physical in the real world, as mobile-payment systems like Google (NAS: GOOG) Wallet are still in their infancy. Many upcoming mobile solutions are still likely to use near-field communications, or NFC, which should eventually benefit NXP Semiconductors (NAS: NXPI) if it can defend its NFC-chip advantage from assailants. Wireless carriers AT&T (NYS: T) , Verizon (NYS: VZ) , and T-Mobile are pushing their own NFC-based ISIS payment system, as recently demoed at SXSW in Austin.
PayPal added NFC to its Android app a while back, but still thinks the technology is a step in the wrong direction. PayPal is a big rival to have breathing down your neck, but small merchants will determine if PayPal's triangle is enough to take down Square.
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At the time this article was published Fool contributor Evan Niu owns shares of Verizon Communications and AT&T, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google, NXP Semiconductors, and eBay; and writing puts on eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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